Laddering
Okay, imagine you have a bunch of cookies and you want to make them last for a long time. But, you also want to make sure you have some cookies to eat every once in a while. Laddering is like taking your cookies and putting them in different jars labeled "now", "soon", and "later".
The jar labeled "now" has cookies you can eat right away. The jar labeled "soon" has cookies you will eat soon, but not right away. The jar labeled "later" has cookies you will eat much later, like in a month or more.
Laddering is when you put your money into different "jars" just like you did with your cookies. You divide your money into different investments with different maturity dates.
Each investment matures (or becomes available to use) at different times. For example, you might buy a 1-year CD (certificate of deposit) for some of your money that matures in a year, a 3-year CD for some of your money that matures in three years, and a 5-year CD for some of your money that matures in five years.
When the first CD matures, you take that money and reinvest it in a new 5-year CD. When the second CD matures, you take that money and reinvest it in a new 5-year CD. You keep doing this until all your money is in 5-year CDs.
This way, you have money available to use every year, but you're also building a long-term savings plan for the future. And just like with your cookies, you won't eat all of them at once and empty all your jars!
The jar labeled "now" has cookies you can eat right away. The jar labeled "soon" has cookies you will eat soon, but not right away. The jar labeled "later" has cookies you will eat much later, like in a month or more.
Laddering is when you put your money into different "jars" just like you did with your cookies. You divide your money into different investments with different maturity dates.
Each investment matures (or becomes available to use) at different times. For example, you might buy a 1-year CD (certificate of deposit) for some of your money that matures in a year, a 3-year CD for some of your money that matures in three years, and a 5-year CD for some of your money that matures in five years.
When the first CD matures, you take that money and reinvest it in a new 5-year CD. When the second CD matures, you take that money and reinvest it in a new 5-year CD. You keep doing this until all your money is in 5-year CDs.
This way, you have money available to use every year, but you're also building a long-term savings plan for the future. And just like with your cookies, you won't eat all of them at once and empty all your jars!